Introduction to Company Law

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Introduction to Company Law

LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. 2. 3. 4. 5. List the types of business entities and its distinctions; Identify the various forms of companies and the changing of status; Discuss the doctrine of separate legal personality and lifting of the veil of incorporation; Describe the agency principles related to company law; and Evaluate the duties of a promoter and the pre-incorporation contracts.

X INTRODUCTION
The first topic of this module introduces you to Company Law. You will begin by looking at the scope and development of Modern Company Law. It is important to identify the main sources of company and the introduction to the Companies Act 1965. The decision in dealing with the most appropriate form of business association is most important. The area of discussion will be on types of business entities and distinctions between the forms of organisations. The registration of different types of companies and the changing of status is allowed by the Companies Act. The legal characteristic of a company allows it to undertake activities in its own right and to sue and be sued in its own name. The separate legal personality characteristic and their implications will be discussed. Although a company is regarded as a person, unfortunately unlike humans, it cannot operate itself as it acts only through agents, either by expressed or implied. The agency principles must be used whenever we wish to attribute responsibility for a contract. The motive behind the formation of a company is relevant. This is because of the way the law treats certain activities carried out in

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X TOPIC 1 INTRODUCTION TO COMPANY LAW

the company. The motive of the person/persons behind the formation of a company is important.

1.1

DEFINITION OF A "COMPANY"

A company is: A "corporation" - an artificial person created by law. A human being is a "natural" person. A company is a "legal" person. A company thus has legal rights and obligations in the same way that a natural person does. The function of a company in a legal sense is to hold property and carry on a business or other activity, as an entity separate from the participants (investors, managers) in that business or activity. Most corporations that are used to carry on business in Malaysia are "companies," that is, corporations incorporated or treated as being incorporated under the Companies Act 1965 (referred to as CA 1965 hereinafter).

ACTIVITY 1.1
What is the purpose of setting up a company and why is it so important to set up a business?

1.1.1

Development of Modern Company Law

Company Law in Malaysia has evolved from the English principles of company law. Most of its fundamental principles are of English origin. In order to appreciate the fundamental principles governing Malaysian Company law, one must understand how company law was first developed in the United Kingdom and how these principles became the core principles of Modern Company Law. The concept of registered company was born during the mid-nineteenth century and as such, company law is a comparatively modern legal phenomenon. Nevertheless, prior to the mid-nineteenth century, business associations existed in such a form as to warrant them being properly described as ancestors of and necessary catalysts to our present system of company law. Figure 1.1 illustrates the development of modern Company Law.

TOPIC 1 INTRODUCTION TO COMPANY LAW W

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Figure 1.1: Development of Modern Company Law

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The Chartered Company Chartered joint stock companies were developed in the seventeenth century, largely as a result of the expansion in the world shipping trade. A joint stock company was an association of members whereby each member contributed capital towards specific trade ventures. The joint company was a sophisticated form of partnership concern, created by royal charter. The charter often provided the association...
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